Big Oil battles disclosure rule to end

By Jennifer A. Dlouhy |
August 21, 2012

American Petroleum Institute chief economist John Felmy says the rule requiring disclosure of costs of foreign licences, taxes and royalties is unfair.

The oil industry on Tuesday made a last-ditch appeal for exceptions to proposed reporting rules that U.S. businesses say would give foreign competitors an unfair advantage while forcing them to stop drilling in Qatar, Cameroon and other countries.

The Securities and Exchange Commission is set to vote Wednesday on whether to require oil, gas and mining companies traded on U.S. exchanges to disclose what they pay to foreign nations in licenses, taxes, royalties and other fees in exchange for extracting natural resources from the countries. The proposed rule stems from an oil and mining disclosure provision in the 2010 Dodd-Frank law.

The Sec. 1504 disclosure requirement, which is poised to win approval, is backed by human rights and social justice groups that argue the added transparency could discourage corruption in resource-rich countries.

But the American Petroleum Institute warned Tuesday that without changes, the proposed rule effectively would force U.S.-traded oil companies to open their playbooks for competitors.

"With a few clicks of a mouse, state-owned oil companies … could plunder information which could help them determine their rivals' resource strategies," said John Felmy, the API's chief economist.

Felmy said the mandated disclosure - which would not be required for private U.S. companies that aren't under the SEC's oversight - would be tantamount to forcing Coca-Cola Co. to reveal its secret formula.

"Once you have seen what companies' payments are, what their approach is, the amount of expenditures they have, that really gives you a road guide, if you will, to your competitors," Felmy said in a conference call with reporters. "If you know how much someone has spent on something ... that gives you information that could help you in terms of bidding on competing resources."

The petroleum institute says the proposal could cost the U.S. tens of billions of dollars and has lobbied the SEC to do a full economic analysis. The absence of such a study could be a legal vulnerability if the rule is adopted and later challenged in court.

The trade group also warns that if the SEC adopts the rule, U.S. companies would be forced to stop drilling in Qatar, Cameroon, China, Angola and other countries that have their own laws prohibiting disclosure of such payments.

Oil companies have asked the SEC to allow an exception for those countries.

But human rights groups say the people in those nations are most vulnerable.

"It is in precisely the countries most reluctant to engage in voluntary transparency where this provision would be most valuable," according to the Revenue Watch Institute, which backs the SEC proposal.

API's Felmy made another pitch Tuesday for the industry's favored disclosure method: a multinational program known as the Extractive Industries Transparency Initiative that takes in payment data and aggregates it, rather than tying that information to specific companies.

Critics say too few countries have signed on to that initiative, but API argues that it is "a workable framework for payment disclosures."

Under the transparency initiative, "proprietary information is protected," Felmy said, even as "regulators and average citizens alike are given access to information that can tell where their money went."